2022 (4) TMI 111 - AT - Income Tax

Tribunal sets aside penalty orders due to favorable verdicts for assessee

Late Smt. Harminder kaur L/H Sh. APS Matharoo Versus ITO, Ward-36 (4), New Delhi

Late Smt. Harminder kaur L/H Sh. APS Matharoo Versus ITO, Ward-36 (4), New Delhi - TMI Issues:1. Disallowance of exemption u/s 54F of the Income Tax Act.2. Imposition of penalty u/s 271(1)(c) of the Act.3. Grounds for challenging the penalty imposition.Issue 1: Disallowance of exemption u/s 54F:The assessee claimed exemption u/s 54F of the Act for capital gains from the sale of a property. The Assessing Officer disallowed the exemption as the investment in a new property was made after the due date of filing the income tax return. Additionally, the AO noted that the assessee had only booked a flat that was yet to be completed. This led to the initiation of penalty proceedings u/s 271(1)(c) of the Act.Issue 2: Imposition of penalty u/s 271(1)(c):A penalty of Rs. 15,79,847 was imposed on the assessee for alleged income evasion. The First Appellate Authority upheld the penalty, leading to the assessee's appeal. The assessee argued that the penalty was imposed on a debatable issue and questioned whether it was for concealment of income or furnishing inaccurate particulars.Issue 3: Grounds for challenging the penalty imposition:The assessee contended that since the ITAT Delhi Bench had allowed the deduction claim u/s 54 of the Act in a previous quantum appeal, the penalty order could not stand. The Tribunal noted that once the assessment order was altered significantly in favor of the assessee, the basis for initiating penalty proceedings ceased to exist. Citing various judicial precedents, including decisions from the Delhi High Court, Allahabad High Court, and Gujarat High Court, the Tribunal emphasized that if additions leading to penalty imposition are deleted, the penalty itself cannot be sustained.In conclusion, the Tribunal allowed the appeal, setting aside the penalty orders imposed by the Assessing Officer and confirmed by the First Appellate Authority. The Tribunal's decision was based on the principle that when the basis for initiating penalty proceedings is undermined by subsequent favorable verdicts for the assessee, the penalty cannot be upheld.